UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
_______________
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended June 30, 2008
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ______ to _____
Commission
file number 1-10927
SIMTROL,
INC.
(Exact
name of smaller reporting company as specified in its
charter)
|
Delaware
|
58-2028246
|
|
(State
of
|
(I.R.S.
Employer
|
|
incorporation)
|
Identification
No.)
|
|
|
|
|
520
Guthridge Ct., Suite 250
|
|
|
Norcross,
Georgia 30092
|
(770)
242-7566
|
|
(Address
of principal executive offices)
|
(Issuer’s
telephone number)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
X
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
|
Accelerated
filer
|
|
|
|
|
Non-accelerated
filer (Do not check if a smaller reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
As
of
August 13, 2008, registrant had 9,333,057 shares of $.001 par value Common
Stock
outstanding.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
SIMTROL,
INC. AND SUBSIDIARIES
Form
10-Q
Quarter
Ended June 30, 2008
Index
|
|
|
Page
|
|
|
|
|
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
1. Financial Statements:
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of
|
|
|
|
June
30, 2008 (unaudited) and December 31, 2007
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the
|
|
|
|
Three
and Six Months Ended June 30, 2008 and 2007 (unaudited)
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
|
Six
Months Ended June 30, 2008 and 2007 (unaudited)
|
5
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6
|
|
|
|
|
|
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
12
|
|
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
17
|
|
|
|
|
|
|
Item
4T.Controls and Procedures
|
17
|
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
Item
6. Exhibits
|
18
|
SIMTROL,
INC.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
|
SIMTROL,
INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE
SHEETS
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
June
30, 2008)
(unaudited)
|
|
|
December
31,2007
|
|
|
Cash
and cash equivalents
|
|
$
|
1,313,752
|
|
$
|
256,358
|
|
|
Accounts
receivable, net
|
|
|
5,769
|
|
|
27,232
|
|
|
Prepaid
expenses and other assets
|
|
|
144,536
|
|
|
19,178
|
|
|
Total
current assets
|
|
|
1,464,057
|
|
|
302,768
|
|
|
|
|
|
|
|
|
|
|
|
Certificate
of deposit-restricted
|
|
|
104,130
|
|
|
101,862
|
|
|
Debt
issuance costs, net
|
|
|
-
|
|
|
16,601
|
|
|
Property
and equipment, net
|
|
|
114,858
|
|
|
117,285
|
|
|
Right
to license intellectual property, net
|
|
|
107,714
|
|
|
115,143
|
|
|
Other
assets
|
|
|
11,458
|
|
|
11,458
|
|
|
Total
assets
|
|
$
|
1,802,217
|
|
$
|
665,117
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
210,358
|
|
|
169,243
|
|
|
Accrued
expenses
|
|
|
278,481
|
|
|
127,365
|
|
|
Deferred
revenue
|
|
|
20,146
|
|
|
-
|
|
|
Common
stock to be issued
|
|
|
26,000
|
|
|
26,000
|
|
|
Total
current liabilities
|
|
|
534,985
|
|
|
322,608
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock to be issued, less current portion
|
|
|
26,000
|
|
|
26,000
|
|
|
Deferred
rent payable, less current portion
|
|
|
14,685
|
|
|
11,967
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
575,670
|
|
|
360,575
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.00025 par value; 800,000 shares authorized;
|
|
|
|
|
|
|
|
|
Series
A Convertible: 770,000 shares designated; 688,664 and 728,664 outstanding;
liquidation values of $2,065,992 and $2,185,992
|
|
|
171
|
|
|
182
|
|
|
Series
B Convertible: 4,700 shares designated; 4,343 and 4,700 outstanding;
liquidation values of $3,257,250 and $3,525,000
|
|
|
1
|
|
|
1
|
|
|
Series
C Convertible: 7,900 shares designated; 3,622 and 0 outstanding;
liquidation values of $2,716,500 and $0
|
|
|
9
|
|
|
-
|
|
|
Common
stock, 100,000,000 shares authorized;
|
|
|
|
|
|
-
|
|
|
$.001
par value; 9,206,357 and 7,314,371 issued and outstanding
|
|
|
9,206
|
|
|
7,314
|
|
|
Additional
paid-in capital
|
|
|
77,440,849
|
|
|
72,119,986
|
|
|
Accumulated
deficit
|
|
|
(76,223,689
|
)
|
|
(71,822,941)
|
)
|
|
Total
stockholders' equity
|
|
|
1,226,547
|
|
|
304,542
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,802,217
|
|
$
|
665,117
|
|
See
notes
to condensed consolidated financial statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
Three
Months Ended
June
30
|
|
Six
Months Ended
June
30
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$
|
7,767
|
|
$
|
21,900
|
|
$
|
20,455
|
|
$
|
36,124
|
|
|
Service
|
|
|
3,116
|
|
|
20,000
|
|
|
70,325
|
|
|
40,000
|
|
|
Total
revenues
|
|
|
10,883
|
|
|
41,900
|
|
|
90,780
|
|
|
76,124
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
105
|
|
|
570
|
|
|
105
|
|
|
942
|
|
|
Service
|
|
|
1,169
|
|
|
11,058
|
|
|
27,306
|
|
|
22,115
|
|
|
Total
cost of revenues
|
|
|
1,274
|
|
|
11,628
|
|
|
27,411
|
|
|
23,057
|
|
|
Gross
profit
|
|
|
9,609
|
|
|
30,272
|
|
|
63,369
|
|
|
53,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative
|
|
|
714,994
|
|
|
744,593
|
|
|
1,622,467
|
|
|
1,412,097
|
|
|
Research
and development
|
|
|
295,000
|
|
|
180,828
|
|
|
643,462
|
|
|
304,499
|
|
|
Total
operating expenses
|
|
|
1,009,994
|
|
|
925,421
|
|
|
2,265,929
|
|
|
1,716,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,000,385
|
)
|
|
(895,149
|
)
|
|
(2,202,560
|
)
|
|
(1,663,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount and beneficial conversion feature of convertible
notes
payable
|
|
|
(333,278
|
)
|
|
-
|
|
|
(532,076
|
)
|
|
-
|
|
|
Amortization
of debt issuance costs
|
|
|
(17,500
|
)
|
|
-
|
|
|
(21,579
|
)
|
|
-
|
|
|
Finance
(expense) on conversion of notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(772,655
|
)
|
|
Interest
income
|
|
|
3,548
|
|
|
13,574
|
|
|
9,740
|
|
|
13,574
|
|
|
Interest
(expense)
|
|
|
(45,425
|
)
|
|
-
|
|
|
(80,067
|
)
|
|
(5,246
|
)
|
|
Total
other income/(expense), net
|
|
|
(392,655
|
)
|
|
13,574
|
|
|
(623,982
|
)
|
|
(764,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(1,393,040
|
)
|
|
(881,575
|
)
|
|
(2,826,542
|
)
|
|
(2,427,856
|
)
|
|
Dividends
on convertible preferred stock paid in common stock
|
|
|
(274,368
|
)
|
|
(300,936
|
)
|
|
(274,368
|
)
|
|
(300,936
|
)
|
|
Deemed
dividend on convertible preferred stock
|
|
|
(1,299,838
|
)
|
|
-
|
|
|
(1,299,838
|
)
|
|
(939,118
|
)
|
|
Net
loss attributable to common stockholders
|
|
|
(2,967,246
|
|
|
(1,182,511
|
)
|
|
(4,400,748
|
)
|
|
(3,667,910
|
)
|
|
Net
loss per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.35
|
)
|
$
|
(0.19
|
)
|
$
|
(0.55
|
)
|
$
|
(0.64
|
)
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
8,366,429
|
|
|
6,121,893
|
|
|
7,975,416
|
|
|
5,709,351
|
|
See
notes
to condensed consolidated financial statements.
|
SIMTROL,
INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,826,542
|
)
|
$
|
(2,427,856
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services
|
|
|
84,639
|
|
|
327,244
|
|
|
Depreciation
and amortization
|
|
|
91,937
|
|
|
34,568
|
|
|
Amortization
of beneficial conversion feature of notes payable and warrant fair
value
|
|
|
532,076
|
|
|
-
|
|
|
Stock-based
compensation
|
|
|
443,568
|
|
|
184,746
|
|
|
Issuance
of warrants upon conversion of notes payable to convertible preferred
stock
|
|
|
-
|
|
|
772,655
|
|
|
Changes
in operating assets and liabilities
|
|
|
206,481
|
|
|
(23,337
|
)
|
|
Net
cash used in operating activities
|
|
|
(1,467,841
|
)
|
|
(1,131,980
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of equipment
|
|
|
(22,939
|
)
|
|
(50,508
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
proceeds from note payable issuance
|
|
|
1,495,021
|
|
|
331,000
|
|
|
Repayment
of note payable
|
|
|
-
|
|
|
(14,286
|
)
|
|
Net
proceeds from stock issuances
|
|
|
1,053,153
|
|
|
2,808,594
|
|
|
Net
cash provided by financing activities
|
|
|
2,548,174
|
|
|
3,125,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
1,057,394
|
|
|
1,942,820
|
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
256,358
|
|
|
-
|
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
1,313,752
|
|
$
|
1,942,820
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Issuance
of Series A Convertible Preferred as dividend payment on
covenant default
|
|
|
-
|
|
|
768,766
|
|
|
Issuance
of warrants as dividend payment on covenant
default
|
|
|
-
|
|
|
403,097
|
|
|
Exchange
of notes payable for Series B Convertible Preferred
stock
|
|
|
-
|
|
|
710,200
|
|
|
Dividend
on Convertible Preferred Stock paid in common
stock
|
|
|
274,368
|
|
|
300,936
|
|
|
Exchange
of convertible notes payable for Series C Convertible
Preferred
stock
|
|
|
1,572,750
|
|
|
-
|
|
See
notes
to condensed consolidated financial statements.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
Note
1 - Nature of Operations and Basis of Presentation
Simtrol,
Inc., formerly known as VSI Enterprises, Inc., was incorporated in Delaware
in
September 1988 and, together with its wholly-owned subsidiaries (the “Company”),
develops, markets, and supports device management software that operates on
PC
platforms.
The
accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in conformity with accounting principles generally
accepted in the United States of America and the instructions to Form 10-Q.
It
is management’s opinion that these statements include all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
the
condensed consolidated financial position as of June 30, 2008, and the condensed
consolidated results of operations, and cash flows for all periods presented.
Operating results for the three months and six months ended June 30, 2008,
are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.
Certain
information and footnote disclosures normally included in the annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these unaudited condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto as
of
December 31, 2007 and for each of the two years ended December 31, 2007, and
2006, which are included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2007 filed with the Securities and Exchange Commission
on March 31, 2008.
Certain
amounts in the 2007 condensed consolidated financial statements have been
reclassified for comparative purposes to conform to the presentation in the
current period condensed consolidated financial statements. These
reclassifications have no effect on previously reported net loss.
Note
2 - Going Concern Uncertainty
As
of
June 30, 2008, the Company had cash and cash equivalents of $1,313,752. Since
inception, the Company has not achieved a sufficient level of revenue to support
its business and incurred a net loss of $2,826,542 and used net cash of
$1,467,841 in operating activities during the six months ended June 30, 2008.
The Company has relied on periodic issuances of common stock, preferred stock,
and convertible debt to sustain its operations. The Company currently requires
substantial amounts of capital to fund current operations and the continued
development and deployment of its Device Manager
TM
and
Curiax
TM
product
lines.
On
January 23, 2008, the Company completed the sale of $1,500,000 of securities
in
a private placement of convertible notes (see Note 6). On June 30, 2008, these
notes were exchanged in a private placement of Series C convertible preferred
stock (see Note 7) and the Company received an additional $1,053,153 (net of
offering costs) from additional investors on that date. Management of the
Company continues to actively seek additional funding to continue to develop
its
products to generate income from operations.
Even
if
the Company obtains additional equity capital, the Company may not be able
to
execute its current business plan and fund business operations for the period
necessary to achieve positive cash flow. In such case, the Company might exhaust
its capital and be forced to reduce expenses and cash burn to a material extent,
which would impair its ability to achieve its business plan. If the Company
runs
out of available capital, it might be required to pursue highly dilutive equity
or debt issuances to finance its business in a difficult and hostile market,
including possible equity financings at a price per share that might be much
lower than the per share price invested by current shareholders. No assurance
can be given that any source of additional cash would be available to the
Company. If no source of additional cash is available to the Company, then
the
Company would be forced to significantly reduce the scope of its operations
or
possibly seek court protection from creditors or cease business operations
altogether.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying condensed consolidated financial
statements have been prepared on a going concern basis, which contemplate the
realization of assets and satisfaction of liabilities in the normal course
of
business. The condensed consolidated financial statements do not include any
adjustments relating to the recoverability of the recorded assets or the
classification of the liabilities that might be necessary should the Company
be
unable to continue as a going concern.
Note
3 - Selected Significant Accounting Policies
Loss
Per Share
Statement
of Financial Accounting Standards ("SFAS") No. 128, “Earnings per Share”,
requires the presentation of basic and diluted earnings per share (“EPS”). Basic
EPS is computed by dividing the loss available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS
includes the potential dilution that could occur if options or other contracts
to issue common stock were exercised or converted. The following dilutive
securities are not reflected in diluted earnings per share because their effects
would be anti-dilutive.
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
|
Options
|
|
|
6,230,763
|
|
|
3,595,900
|
|
|
Warrants
|
|
|
24,175,509
|
|
|
16,531,774
|
|
|
Convertible
preferred stock
|
|
|
18,684,656
|
|
|
12,378,656
|
|
|
Total
|
|
|
49,090,928
|
|
|
32,506,330
|
|
Accordingly,
basic and diluted loss per share are identical.
Note
4 - Stock Based Compensation
On
June
17, 2008, the independent directors of the Company approved an amendment to
the
Company’s 2002 Equity Incentive Plan (the “Plan”) to increase the number of
shares of authorized common stock available for issuance under the Plan to
8,000,000 shares from the previously authorized number of 6,000,000 shares.
Under
SFAS No. 123R, "Share Based Payment.", share-based payment awards result in
a
cost that will be measured at fair value on the awards’ grant date based on the
estimated number of awards that are expected to vest. Compensation costs for
awards that vest will not be reversed if the awards expire without being
exercised. Stock compensation expenses under SFAS 123R was $156,232 and $108,661
during the three months ended June 30, 2008, and 2007 respectively. Of these
totals, $45,835 and $27,972 was classified as research and development expense
and $110,397 and $80,689 was classified as selling, general, and administrative
expense for the three months ended June 30, 2008 and 2007, respectively. Stock
compensation expenses under SFAS 123R was $443,568 and $179,010 during the
six
months ended June 30, 2008 and 2007, respectively. Of these totals $87,726
and
$45,136 were classified as research and development expense and $355,842 and
$133,874 were classified as selling, general, and administrative expensed during
the six months ended June 30, 2008 and 2007, respectively.
The
Company uses historical data to estimate option exercise and employee
termination data within the valuation model and historical stock prices to
estimate volatility. The fair value for options to purchase 2,521,500 and
1,825,000 shares issued during the six months ended June 30, 2008 and 2007,
respectively, were estimated at the date of grant using a Black-Scholes
option-pricing model to be $829,306 and $972,354, with the following
weighted-average assumptions.
|
|
|
For
the three months ended June 30,
|
|
For
the six months ended June 30,
|
|
|
Assumptions
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
rate
|
|
|
2.57-3.67
|
%
|
|
4.92
|
%
|
|
2.57-3.67
|
%
|
|
4.92
|
%
|
|
Annual
rate of dividends
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
Volatility
|
|
|
115
|
%
|
|
145
|
%
|
|
115-131
|
%
|
|
142-145
|
%
|
|
Average
life
|
|
|
5
years
|
|
|
5
years
|
|
|
5
years
|
|
|
5
years
|
|
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Company’s employee stock options have characteristics significantly different
from those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate.
A
summary
of option activity under the Company’s 1991 Stock Option Plan and the Company’s
2002 Equity Incentive Plan as of June 30, 2008 and changes during the six months
then ended are presented below:
|
|
|
|
|
Weighted-
Average
|
|
Weighted-Average
Remaining
|
|
|
|
|
Shares
|
|
Exercise
Price
|
|
Term
(in years)
|
|
|
Outstanding
January 1, 2008
|
|
|
4,401,375
|
|
$
|
0.94
|
|
|
|
|
|
Granted
|
|
|
2,521,500
|
|
$
|
0.70
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(692,112
|
)
|
$
|
1.43
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
6,230,763
|
|
$
|
0.79
|
|
|
8.1
|
|
|
Exercisable
at June 30, 2008
|
|
|
2,068,838
|
|
$
|
0.94
|
|
|
5.4
|
|
The
weighted-average grant-date fair values of options granted during the six months
ended June 30, 2008 and 2007 were $0.33 and $0.48, respectively. No options
were
exercised during the six months ended June 30, 2008.
As
of
June 30, 2008, there was $1,938,298 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
2002 Equity Incentive Plan. That cost is expected to be recognized over a
weighted average period of 2.3 years.
At
June
30, 2008, 1,787,212 options remain available for grant under the 2002 Equity
Incentive Plan. No options are available to be issued under the 1991 Stock
Option Plan.
On
January 18, 2008, the Company granted options to purchase 50,000 shares of
common stock to a consultant. The options vested immediately and were granted
with an exercise price equal to the fair value of the Company’s stock on the
date of the grant.
On
January 28, 2008 the Company granted options to purchase 25,000 shares of common
stock to an employee with three-year vesting periods with an exercise price
equal to the fair value of the Company’s stock on the date of the
grant.
During
the three months ended March 31, 2008, the Company granted options to purchase
170,000 shares of common stock to non-employee directors with immediate vesting
periods at exercise prices equal to the fair values of the Company’s stock on
the dates of the grants.
On
April
11, 2008, the Company granted options to purchase 276,500 shares of common
stock
to employees with one year vesting periods at exercise prices equal to the
fair
value of the Company’s stock on the date of the grant.
On
June
19, 2008, the Company granted options to purchase a total of 2,000,000 shares
of
common stock to its Chief Executive Officer with three year vesting periods
as
follows:
|
Number
of Options
|
Exercise
Price
|
|
750,000
|
$0.37
|
|
750,000
|
$0.75
|
|
500,000
|
$1.25
|
Recently
Implemented Accounting Pronouncements
Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value
Measurements” for financial assets and liabilities, as well as any other assets
and liabilities that are carried at fair value on a recurring basis in financial
statements. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS
No. 157 applies under other accounting pronouncements that require or permit
fair value measurements, the Financial Accounting Standards Board (“FASB”)
having previously concluded in those accounting pronouncements that fair value
is the relevant measurement attribute. Accordingly, SFAS No. 157 does not
require any new fair value measurements. The Company applied the provisions
of
FSP FAS No. 157-2, “Effective Date of FASB Statement 157” which defers the
provisions of SFAS No. 157 for nonfinancial assets and liabilities to the first
fiscal period beginning after November 15, 2008. The deferred nonfinancial
assets and liabilities include items such as goodwill. The Company is required
to adopt SFAS No. 157 for nonfinancial assets and liabilities in the first
quarter of 2009 and is still evaluating the impact on the condensed consolidated
financial statements.
Effective
January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities.” SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The
Company did not elect the fair value reporting option for any assets or
liabilities not previously recorded at fair value.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement
No. 133”.
SFAS
161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS
No.
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. The guidance in
SFAS
161
is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. This
Statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption.
At
this time, management is evaluating the implications of
SFAS
161
and
its impact on the financial statements has not yet been
determined.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting in the bodies that do not require adoption until a future
date
are not expected to have a material impact on our consolidated financial
statements upon adoption.
Note
5 - Income Taxes
The
Company’s 2007 federal and state tax returns are currently on extension through
September 15, 2008.
The
Company recognized a deferred tax asset of approximately $18.5 million as of
June 30, 2008, primarily relating to net operating loss carry forwards of
approximately $47.9 million, which expire through 2027. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
The
Company considers projected future taxable income and tax planning strategies
in
making this assessment. At present, the Company does not have a history of
income to conclude that it is more likely than not that the Company will be
able
to realize all of its tax benefits; therefore, a valuation allowance of $18.5
million was established for the full value of the deferred tax asset. For
the six months ended June 30, 2008, the valuation allowance increased by
approximately $406,000. A valuation allowance will be maintained until
sufficient positive evidence exists to support the reversal of any portion
or
all of the valuation allowance net of appropriate reserves. Should the Company
be profitable in future periods with supportable trends, the valuation allowance
will be reversed accordingly.
Note
6 - Convertible Notes Payable
On
January 23, 2008, the Company completed the sale of $1,500,000 of convertible
notes payable (“Convertible Notes”) in a private placement.
Important
terms of the Convertible Notes included:
|
·
|
The
Convertible Notes were unsecured, bore an interest at the rate of
12% per
annum, were payable six months from the issue date (“Maturity Date”) and
could be pre-paid at any time without penalty
.
|
|
·
|
If
the Company closed a “Qualifying Next Equity Financing” before the
Maturity Date, the then-outstanding balance of principal and accrued
interest on the Convertible Notes would automatically convert into
shares
of the “Next Equity Financing Securities” the Company issues. If the
Company closed a “Non-Qualifying Next Equity Financing” before the
Maturity Date, the then-outstanding balance of principal and accrued
interest on the Convertible Notes could be converted, at the option
and
election of the investor, into shares of the “Next Equity Financing
Securities” the Company issues.
|
|
·
|
A
“Qualifying Next Equity Financing” means the first bona fide equity
financing (or series of related equity financing transactions) occurring
subsequent to the date of issue of a Convertible Note in which the
Company
sells and issues any of the Company’s securities for total consideration
totaling not less than $2.0 million in the aggregate (including the
principal balance and accrued but unpaid interest to be converted
on all
the outstanding Convertible Notes) at a price per share for equivalent
shares of common stock that is not greater than $0.75 per share.
A
“Non-Qualifying Next Equity Financing” means that the Company completes a
bona fide equity financing but fails to raise total consideration
of at
least $2.0 million, or the price per share for equivalent shares
of common
stock is greater than $0.75 per share. “Next Equity Financing Securities”
means the type and class of equity securities that the Company sells
in a
Qualifying Next Equity Financing or a Non-Qualifying Next Equity
Financing. If the Company sells a unit comprising a combination of
equity
securities, then the Next Equity Financing Securities shall be deemed
to
constitute that unit.
|
|
·
|
Upon
conversion of a Convertible Note, the Company will issue that number
of
shares of Next Equity Financing Securities equal the quotient obtained
by
dividing the then-outstanding balance of principal and accrued interest
on
the Convertible Notes by the price per share of the Next Equity Financing
Securities.
|
|
·
|
Upon
any default, the Company would be required to pay a 1% default fee
on the
outstanding balance. The default fee will be added to the outstanding
balance and become due under the terms of the Convertible Note.
|
The
Company also issued investors warrants to acquire 500,000 shares of common
stock
at an exercise price of
$0.75
per
Share. The Warrants have a term ending on the earlier to occur of (i) the
fifth anniversary of the Warrant issue date or (ii) the closing of a change
of control event.
The
Company raised a net total of $1,479,000 from the sale (offering costs of
approximately $16,000 incurred in 2007 and $5,000 during the six months ended
June 30, 2008 were capitalized as financing costs) and the proceeds of the
offering were used to fund current operational expenses. In conjunction with
the
issuance of the Convertible Notes, the Company recorded debt discounts of
$532,076 for the estimated value of the warrants
and
a
beneficial conversion feature. Amortization of the debt discounts included
in
finance expense during the three and six months ended June 30, 2008 amounted
to
$333,278 and $532,076, respectively. All debt discounts have been fully
amortized as of June 30, 2008, due to the exchange of all the Convertible Notes
into Series C Convertible Preferred Stock as a result of a “Qualifying Next
Equity Financing” on June 30, 2008 per the above terms (see Note 7). $72,750 of
accrued interest on the notes converted on that date and $6,144 of accrued
interest remained outstanding on that date and was repaid to noteholders in
July
2008.
Note
7 - Stockholders’ Equity
During
the six months ended June 30, 2008, the Company issued 1,251 shares of common
stock valued at $750 to members of the Board of Directors for attendance at
meetings. This amount was recorded as selling, general, and administrative
expense.
During
the six months ended June 30, 2008, the Company issued the 160,200 restricted
common shares to Triton Value Partners valued at $84,639 as part of its 24-month
engagement with the Company that commenced on January 31, 2007.
During
the six months ended June 30, 2008, two Series A Convertible Preferred Stock
holders converted 40,000 shares of their Preferred Stock and were issued 160,000
shares of common stock.
During
the three months ended March 31, 2008, eleven Series B Convertible Preferred
Stock holders converted 357 shares of Preferred Stock and were issued 714,000
shares of common stock.
On
January 3, 2008 the Company issued 10,000 shares of common stock valued at
$9,500 in exchange for investor relations services performed for the Company
by
an investor relations consulting company. On February 5, 2008 the Company issued
105,000 shares of common stock valued at $78,750 in exchange for investor
relations and consulting services performed for the Company by an investor
relations consultant.
On
June
26, 2008, the Certificate of Designation establishing the terms of a Series
C
Convertible Preferred Stock was filed. Certain terms of the Series C Preferred
Stock are as follows:
|
·
|
The
Series C Convertible Preferred Stock stated value is $750.00 and
each
share converts into common stock at the conversion price of $0.375
at any
time and without limitation.
|
|
·
|
Without
approval of a majority of the Series C Convertible Preferred Stock
Holders, the Company shall not incur debt (other than debt collateralized
by accounts receivable of the Company) in excess of an aggregate
of $1.5
million outside of trade debt in the normal course of business. The
terms
of such debt shall not encumber any copyrights, marketing materials,
software code or any other proprietary technology, software or product
processes, patents or patent licenses.
|
|
·
|
The
Series C Convertible Preferred Stock will pay a 12% (based on stated
value) noncumulative coupon beginning December 31, 2008, payable
semi-annually (June 30, December 31) in cash or common stock (common
stock
value deemed $0.375 for purpose of dividend payment if closing price
of
common stock on payment date is less than $0.375).
|
|
·
|
If
the Company’s common stock bid price closes at or above $1.00 for 20
consecutive trading days and the average daily trading volume of the
common stock is equal to or greater than $150,000, then Series C
Convertible Preferred Stock will automatically convert to common
at $0.375
per common share.
|
|
·
|
Series
C Convertible Preferred Stock Holders receive pre-emptive right to
participate in subsequent equity rounds at the same pro rata percentage
of
ownership they currently own in Company on an as-converted basis
today.
|
|
·
|
Series
C Convertible Preferred Stock is callable at $1,875 per share at
option of
Company.
|
|
·
|
A
total of 7,900 shares of Series C Convertible Preferred Stock were
designated.
|
On
June
30, 2008, the Company completed the sale of a total of $2,716,750 of securities
in a private placement of 3,622 units (at $750 per unit) consisting of one
share
of Series C Convertible Preferred Stock and one warrant to purchase 2,000 shares
of our common stock at an exercise price of $0.375 per share. Each share of
Series C Convertible Preferred Stock has a conversion price of $0.375 per share
(one Series C Convertible Preferred share equals 2,000 shares of common stock).
The warrants have five-year terms. In connection with the issuance of the
securities above, a deemed dividend of $1,299,838 was recorded to reflect the
beneficial conversion feature on the common shares that would result from
the conversion of the Series C Preferred Stock, due to the $0.19 per share
effective conversion price of the Series C Convertible Preferred Stock issued
on
June 30, 2008.
Twenty-one
note holders, including one member of the Board of Directors, exchanged
$1,500,000 principal and $72,750 of accrued interest due from the Company under
their Convertible Notes for units in the private placement (see Note 6).
On
June
30, 2008, in accordance with the terms of the terms of the Series B Convertible
Preferred stock, the Company paid a dividend to the Series B stockholders of
521,160 shares of its common stock. The value of the stock on that date was
$0.375 per the terms of the Series B Convertible Preferred stock.
On
June
30, 2008, in accordance with the terms of the terms of the Series A Convertible
Preferred stock, the Company paid a dividend to the Series A stockholders of
220,375 shares of its common stock. The value of the stock on that date was
$0.375 per the terms of the Series A Convertible Preferred stock.
Note
8- Major Customers
Revenue
from one customer comprised 28 % and 77% of condensed consolidated revenues
for
the three and six months ended June 30, 2008, respectively. At June 30, 2008,
related accounts receivable of $3,000 from this customer comprised 52% of
consolidated receivables.
Revenue
from four customers comprised 100% of consolidated revenues for the six months
ended June 30, 2008.
Note
9 - Intangibles
In
conjunction with the purchase of the Integrated Digital Systems (“IDS”) interest
in Justice Digital Solutions (“JDS”) in November 2006, the Company recorded an
intangible asset of $130,000 on November 28, 2006, representing the fair value
of 500,000 shares of common stock paid and payable to IDS, to reflect the value
of the license to use the OakVideo Software. This amount is being amortized
over
the estimated remaining life of the license agreement for JDS’ use of the
OakVideo software through October 2015. Amortization during the three months
and
six months ended June 30, 2008 and 2007, respectively, each totaled $3,714
and
$7,428.
The
Company
also
recorded a customer list of $40,000 in conjunction with the purchase of the
IDS
interest in JDS. The $40,000 was fully amortized as of December 31, 2007.
Amortization during the three and six months ended June 30, 2007 was $10,000
and
$20,000, respectively.
Note
10 - Subsequent Events
On
July
17, 2008, one stockholder converted a total of 50 shares of Series B Convertible
Preferred Stock into 100,000 shares of common stock.
On
July
30, 2008, the Company’s previous standby, irrevocable letter of credit for
$100,000 as a security deposit for the Company’s office space was reduced by
$20,000 in accordance with the Company’s lease. On that date, the Company
collateralized the letter of credit with an $80,000 17-month certificate of
deposit and $24,506 of previously restricted funds were made available to the
Company as cash.
On
July
31, 2008, the Company issued 26,700 restricted shares of common stock valued
at
$10,146 pursuant to its advisory services agreement with Triton Value Partners.
On
August
11, 2008 the Company granted options to purchase 100,000 shares of common stock
to an employee with three-year vesting periods with an exercise price equal
to
the fair value of the Company’s stock on the date of the grant.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion highlights the material factors affecting our results
of
operations and the significant changes in the balance sheet items. The notes
to
our condensed consolidated financial statements included in this report and
the
notes to our consolidated financial statements included in our Form 10-KSB
for
the year ended December 31, 2007 should be read in conjunction with this
discussion and our condensed consolidated financial statements.
CRITICAL
ACCOUNTING POLICIES
We
prepare our unaudited condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
As such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and
expenses during the periods presented. The significant accounting policies
which
we believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
|
·
|
Revenue
recognition
.
Our revenue recognition policy is significant because our revenue
is a key
component of our results of operations. In addition, our revenue
recognition determines the timing of certain expenses. We follow
very
specific and detailed guidelines in measuring revenue; however, certain
judgments affect the application of our revenue policy. Revenue results
are difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary
significantly from quarter to quarter and could result in future
operating
losses. Revenues consist of the sale of device management, control,
and
monitoring software and digital arraignment software, videoconferencing
systems and related maintenance contracts on these systems. We marketed
three products during 2008 and 2007: our control and monitoring software,
Device Manager
TM
(formerly known as OnGoer®), our digital arraignment software called
Curiax Arraigner
TM
,
and our video visitation product called Curiax Visitor
TM
.
Revenue consists of the sale of device control software and related
maintenance contracts on these systems. Revenue on the sale of hardware
is
recognized upon shipment. We recognize revenue from DeviceManager
software
sales upon shipment as we sell the product to audiovisual integrators,
net
of estimated returns and discounts. Revenue on maintenance contracts
is
recognized over the term of the related contract. We had no sales
of
Curiax products during 2007 or
2008.
|
|
·
|
Capitalized
software development costs
.
Our policy on capitalized software development costs determines the
timing
of our recognition of certain development costs. In addition, this
policy
determines whether the cost is classified as development expense
or
capitalized. Software development costs incurred after technological
feasibility has been established are capitalized and amortized, commencing
with product release, using the greater of the income forecast method
or
on a straight-line basis over the useful life of the product. Management
is required to use professional judgment in determining whether
development costs meet the criteria for immediate expense or
capitalization.
|
|
·
|
Impairment
of Long-Lived Assets
.
We record impairment losses on assets when events and circumstances
indicate that the assets might be impaired and the undiscounted cash
flows
estimated to be generated by those assets are less than the carrying
amount of those items. Our cash flow estimates are based on historical
results adjusted to reflect our best estimate of future market and
operating conditions. The net carrying value of assets not recoverable
is
reduced to fair value. Our estimates of fair value represent our
best
estimate based on industry trends and reference to market rates and
transactions.
|
FINANCIAL
CONDITION
During
the six months ended June 30, 2008, total assets increased approximately 171%
to
$1,802,217 from $665,117 at December 31, 2007. The increase in assets was
primarily due to the proceeds of approximately $1,495,000 from issuance of
our
convertible notes in January 2008 in a private placement (notes converted to
equity on June 30, 2008), and proceeds of approximately $1,054,000 from
additional equity investment on June 30, 2008 (see notes 6 and 7 to unaudited
condensed consolidated financial statements), partially offset by cash used
to
fund operations during the period.
Current
liabilities increased $212,377 or 66%, due primarily
to
increased accrued expenses during the current year as the Company deferred
salary payments to employees as well as vendors to reduce cash use.
See
Note
2 to the unaudited condensed consolidated financial statements regarding the
Company’s going concern uncertainty.
The
Company does not have any material off-balance sheet arrangements.
Results
of Operations
Three
Months Ended June 30, 2008 and 2007
Revenues
Revenues
were $10,883 and $41,900 for the three months ended June 30, 2008 and 2007,
respectively. The decreased revenues of $31,017 during the current year were
due
to lower service revenue of $14,133 and decreased software license revenues
of
$7,980, as existing customers purchased less software during the current year.
The effects of inflation and changing prices on revenues and loss from
operations during the periods presented have been de minimus.
Cost
of Revenues and Gross Profit
Cost
of
revenues decreased $10,354, or 89%, for the three months ended June 30, 2008
compared to the three months ended June 30, 2007 due primarily to lower service
revenues during the current year.
Gross
margins were approximately 88% and 72% for each of the three months ended June
30, 2008 and 2007, respectively. The higher margins during the current period
are due to the higher mix of higher margin software license sales during the
current period.
Selling,
General, and Administrative Expenses
Selling,
general, and administrative expenses were $714,994 and $744,593 for the three
months ended June 30, 2008 and 2007, respectively. The decrease in the expenses
for three-month period ended June 30, 2008 resulted primarily from decreased
headcount and decreased professional fees related to the hiring of Triton Value
Partners and the payments made to them in common stock (see Note 6 to the
unaudited condensed consolidated financial statements). Total expense recorded
during the three months ended June 30, 2008 and 2007 for common stock payments
made to Triton per the terms of the consulting agreements were $29,904 and
$123,087, respectively. The decrease was due to the Company’s lower stock price
during the current year. During the three months ended June 30, 2008, we
recorded stock-based compensation of $110,397 to reflect the fair value of
the
stock options granted to non-employee directors at that time. Stock
based-compensation during the three-month period ended June 30, 2007 totaled
$80,689. The higher current year total was due primarily to more options being
outstanding during the current period. The Company also recorded an approximate
$53,000 expense related to the termination of its former CEO in May 2008 for
the
total estimate of payments to be made over the term of the former CEO’s
separation agreement.
Research
and Development Expenses
Research
and development costs were $295,000 and $180,828 for the three months ended
June
30, 2008 and 2007, respectively. The increase in expense during the current
year
was due primarily to the hiring of additional software development personnel
subsequent to June 30, 2007. During the three months ended June 30, 2008 and
2007, we did not capitalize any software development costs related to new
products under development.
During
the three months ended June 30, 2008 and 2007, respectively, stock-based
compensation of $45,835 and $27,972 was included in research and development
expense to record the amortization of the estimated fair value of the portion
of
previously granted stock options that vested during the current period.
Finance
Expense on the Conversion of Notes Payable
Finance
expense of $396,203 for the three months ended June 30, 2008 consisted primarily
of the $333,278 to record amortization of the fair value of the warrants granted
to noteholders and the beneficial conversion feature of the notes, as part
of the Convertible Notes issued by the Company in January 2008, $44,877 to
record the accrued interest on the convertible notes payable and other interest
expense, and $17,500 to record the amortization of debt offering costs related
to the notes originated in January 2008 that were exchanged into the Series
C
Convertible Preferred Stock on June 30, 2008.
Other
Income
Other
income of $3,548 and $13,574 for the three months ended June 30, 2008 and 2007,
respectively, consisted primarily of interest earned on our cash balances during
the respective periods.
Net
Loss and Net Loss Attributable to Common Stockholders
Net
loss
for the three months ended June 30, 2008 was $1,393,040 compared to a net loss
of $881,575 for the three months ended June 30, 2007. The increase in net loss
was due primarily to finance costs of approximately $394,000 during the current
period associated with the convertible debt issued in January 2008 that was
exchanged into the Company’s Series C convertible preferred stock offering on
June 30, 2008. Net loss attributable to common stockholders of $2,967,246
included $274,368 to record the value of common stock dividends paid on June
30,
2008 to Series A and Series B Convertible Preferred Stock holders and $1,299,838
to record the deemed preferred dividend on the Series C Convertible Preferred
Stock issued on June 30, 2008. See note 7 to the condensed consolidated
financial statements.
Six
Months Ended June 30, 2008 and 2007
Revenues
Revenues
were $90,780 and $76,124 for the six months ended June 30, 2008 and 2007,
respectively. The increased service revenue earned during the six months ended
June 30, 2008 were primarily offset by lower software license purchases from
our
existing customers during the current period.
Cost
of Revenues and Gross Profit
Cost
of
revenues increased $4,354, or 19%, for the six months ended June 30, 2008
compared to the six months ended June 30, 2007 due primarily to higher service
revenues during the current year.
Gross
margins were approximately 70% and 70% for the six months ended June 30, 2008
and 2007, respectively.
Selling,
General, and Administrative Expenses
Selling,
general, and administrative expenses were $1,622,467 and $1,412,097 for the
six
months ended June 30, 2008 and 2007, respectively. The increase in the six-month
period ended June 30, 2008 compared to the similar period in 2007 resulted
primarily from and an increase in stock-based compensation of $227,693 during
the current period due to amortization of stock option grants made to employees
and non-employee directors during the current period.
Research
and Development Expenses
Research
and development expenses were $643,462 in the six months ended June 30, 2008
and
$304,499 in the six months ended June 30, 2007. The increase in expense was
due
mainly to the hiring of additional software development personnel subsequent
to
June 30, 2007 as well as the use of third-party development personnel during
the
current period.
During
the six months ended June 30, 2008 and 2007, respectively, stock-based
compensation of $87,726 and $45,136 was included in research and development
expense to record the amortization of the estimated fair value of the portion
of
previously granted stock options that vested during the current period.
Other
Income/(Expense)
Other
expense during the six months ended June 30, 2008 of $623,982 consisted
primarily of $532,076 to amortize debt discount and the value of warrants
granted to the convertible note holders in January 2008, $78,894 to record
the
interest accrued on the convertible notes prior to their exchange into the
Series C convertible stock offering, and debt offering costs of $21,578
amortized over the term of the notes.
Other
expense of $764,327 for the six months ended June 30, 2007 consisted primarily
of the value of the warrants to purchase 710,200 shares of common stock granted
to noteholders as an inducement for the conversion of their notes for Series
B
Convertible Preferred stock, and accrued interest on the notes payable
originated by the Company during 2006 and 2007 to fund operations.
Net
Loss and Net Loss Attributable to Common Stockholders
Net
loss
for the six months ended June 30, 2008 was $2,826,542 compared to a net loss
of
$2,427,856 for the six months ended June 30, 2007. The greater loss during
the
current period was due primarily to the increased stock-based compensation
of
approximately $264,000 during the current year, a termination cost of
approximately $53,000 recorded related to the termination of the Company’s
former Chief Executive Officer in May 2008, as well as higher payroll costs
during the current year due to additional personnel hired subsequent to June
30,
2007. Net loss attributable to common stockholders of $2,967,246 included
$274,368 to record the value of common stock dividends paid on June 30, 2008
to
Series A and Series B Convertible Preferred Stock holders and $1,299,838 to
record the deemed preferred dividend on the Series C Convertible Preferred
Stock
issued on June 30, 2008. See note 7 to the condensed consolidated financial
statements.
A
summary
of contractual obligations as of June 30, 2008 is as follows:
|
|
|
|
Payments
due by period
|
|
|
Contractual
obligations
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
|
Operating
Lease Obligations
|
|
$
|
746,966
|
|
$
|
171,401
|
|
$
|
348,724
|
|
$
|
226,481
|
|
|
-
|
|
|
Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet
under
GAAP
|
|
|
52,000
|
|
|
26,000
|
|
|
26,000
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
798,966
|
|
$
|
197,401
|
|
$
|
374,724
|
|
$
|
226,481
|
|
|
-
|
|
LIQUIDITY
AND CAPITAL RESOURCES
General
Due
to a
net loss during the six months ended June 30, 2008 of $2,826,542, cash used
in
operating activities of $1,467,841 during the six months ended June 30, 2008,
and an accumulated deficit of approximately $76.2 million at June 30, 2008,
and
our inability to date to obtain sufficient financing to support current and
anticipated levels of operations, there is a substantial doubt about the
Company’s ability to continue as a going concern. We have relied on periodic
issuances of common stock, convertible debt, and notes payable to sustain our
operations.
As
of
June 30, 2008, we had cash and cash equivalents of $1,313,752. We currently
require substantial amounts of capital to fund current operations and the
continued development and deployment of our Device Manager
TM
and
Curiax
TM
product
lines. On January 23, 2008, we completed the sale of $1,500,000 of convertible
notes payable in a private placement and these notes and $72,750 of accrued
interest were exchanged into Series C Convertible Preferred Stock in connection
with a private placement on June 30, 2008. We raised an additional $1,053,153
from the equity offering on that date and anticipate having an additional
closing on the offering during third quarter 2008. We will require additional
funding to fund our development and operating activities. This additional
funding could be in the form of the sale of assets, debt, equity, or a
combination of these financing methods. However, there can be no assurance
that
we will be able to obtain such financing if and when needed, or that if
obtained, such financing will be sufficient or on terms and conditions
acceptable to us. If we are unable to obtain this additional funding, our
business, financial condition and results of operations would be adversely
affected. We used the proceeds of the convertible notes private placement for
working capital purposes.
We
used
$1,467,841 in cash from operating activities during the six months ended June
30, 2008 due primarily to our net loss during the period of $2,826,542. We
used
$1,131,980 in cash from operating activities during the six months ended June
30, 2007 due primarily to the Company’s net loss during the period of
$2,427,856. The increase in cash used during the current period was due mainly
to the hiring of additional personnel after June 30, 2007. Cash received from
financing activities during the six months ended June 30, 2008 included
$1,500,000 of convertible notes payable issued less approximately $5,000 of
deferred financing costs incurred during the period. These notes were exchanged
into the Company’s Series C convertible preferred stock offering on June 30,
2008, at which time the Company received $1,053,153 net cash proceeds from
additional investments. Cash received from financing activities during the
six
months ended June 30, 2007 included $331,000 of notes payable originated by
three investors, including one member of the Company’s board of directors, as
well as the approximate $2,808,000 in net proceeds received from the Series
B
convertible preferred private placement that the Company closed in the six
months ended June 30, 2007.
During
the six months ended June 30, 2008 and 2007, respectively, we used $22,939
and
$50,508 in investing activities primarily to purchase new computer
equipment.
In
view
of the matters described in the preceding paragraph, recoverability of a major
portion of the recorded asset amounts shown in the accompanying condensed
consolidated balance sheet is dependent upon our continued operations, which
in
turn is dependent upon our ability to meet our financing requirements on a
continuing basis and attract additional financing. The unaudited condensed
consolidated financial statements do not include any adjustments relating to
the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
The
Company expects to spend less than $75,000 for capital expenditures for the
remainder of fiscal 2008.
FORWARD-LOOKING
STATEMENTS
Certain
statements contained herein are “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995, such as statements
relating to financial results and plans for future sales and business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition, our ability
to complete the development of and market our new Device Manager product line
and other uncertainties detailed from time to time in our Securities and
Exchange Commission (“the SEC”) filings, including our Annual Report on Form
10-KSB and our quarterly reports on Form 10-Q.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company had not material exposure to market risk from derivatives or other
financial instruments as of June 30, 2008.
ITEM
4T. CONTROLS AND PROCEDURES
The
Company maintains a system of internal controls designed to provide reasonable
assurance that transactions are executed in accordance with management’s general
or specific authorization; transactions are recorded as necessary to (1) permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”), and (2) maintain
accountability for assets. Access to assets is permitted only in accordance
with
management’s general or specific authorization. In 2007, the Company adopted and
implemented the control requirements of Section 404(a) of the Sarbanes-Oxley
Act
of 2002 (the “Act”).
A
material weakness is a significant deficiency (or a combination of significant
deficiencies) that result in a more-than-remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
A
significant deficiency is a control deficiency (or combination of internal
control deficiencies) that adversely affects the Company’s ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with US GAAP such that there is a more-than-remote likelihood that
a
misstatement of the Company’s annual or interim financial statements that is
more than inconsequential will not be prevented or detected. The standard
specifies that a misstatement is inconsequential if a reasonable person would
conclude, after considering the possibility of further undetected misstatements,
that the misstatement, either individually or when combined with other
misstatements, would clearly be immaterial to the financial statements. If
a reasonable person could not reach such a conclusion regarding a particular
misstatement, that misstatement would be more than inconsequential.
It
is the
responsibility of the Company’s management to establish and maintain adequate
internal control over financial reporting. The Company maintains disclosure
controls and procedures that are designed to ensure that information required
to
be disclosed in our Securities Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our
management, including the Company’s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. Our management, including the Company’s Chief Executive Officer and
Chief Financial Officer, evaluated as of June 30, 2008, the effectiveness of
the
design and operation of our disclosure controls and procedures. Based upon
that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were not effective.
The
Company’s material weaknesses include a lack of segregation of duties and
difficulty in evaluating, applying, and documenting complex accounting
principles. With respect to the first material weakness, which relates to
segregation of duties, although we believe our risks with respect to this matter
are minimal, we still acknowledge that it would be beneficial for the Company
to
have sufficient personnel to segregate certain procedures. We believe, however,
that the costs we would incur to increase our staff solely for this purpose
exceeds the potential reduction in risk. Our Chief Executive Officer and Chief
Financial Officer are monitoring this situation to determine if these
circumstances change. If this situation changes, management’s intent is to
increase staffing within our general accounting and financial functions if
it is
determined that the action results in a net benefit to the Company.
With
respect to the second material weakness, in circumstances where we may become
(or contemplate becoming) a party to transactions in which our expertise is
limited, we would engage the services of outside financial consultants, if
necessary.
Part
II - OTHER INFORMATION
ITEM
6. EXHIBITS
The
following exhibits are filed with or incorporated by reference into this report.
The exhibits which are denominated by an asterisk (*) were previously filed
as a
part of, and are hereby incorporated by reference from either (i) the
Post-Effective Amendment No. 1 to the Company's Registration Statement on Form
S-18 (File No. 33-27040-D) (referred to as “S-18 No. 1”) or (ii) ) the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2006 (referred
to
as “2006 10-KSB”).
|
Exhibit
No.
|
Description
|
|
|
|
|
3.1*
|
Certificate
of Incorporation as amended through March 8, 2007 (2006
10-KSB)
|
|
|
|
|
3.2*
|
Amended
Bylaws of the Company as presently in use (S-18 No. 1, Exhibit
3.2)
|
|
|
|
|
10.9*
|
Triton
Business Development Services Engagement Agreement dated January
31, 2007
(2006 10-KSB)
|
|
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Exchange Act Rule
13a-14(a).
|
|
|
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a).
|
|
|
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
|
|
SIMTROL,
INC.
|
|
|
|
|
Date: August
14, 2008
|
By:
|
/s/ Oliver
M.
Cooper III
|
|
|
Chief
Executive Officer
|
|
|
(Principal
executive officer)
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Stephen
N. Samp
|
|
|
Chief
Financial Officer
(Principal financial and
accounting officer)
|
Grafico Azioni Simtrol (CE) (USOTC:SMRL)
Storico
Da Feb 2025 a Mar 2025
Grafico Azioni Simtrol (CE) (USOTC:SMRL)
Storico
Da Mar 2024 a Mar 2025
